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New York could have $1.6 billion more per year if people didn't keep smuggling in liquor and cigarettes from other states, allowing them to circumvent the tax, according to Crain's New York Business. Smuggling is so pervasive that, according to Crain's, about a quarter of alcohol sales and half of cigarette sales involve bootleg product, despite (or perhaps because of) rising taxes on both in the past decade. Many of the cigarettes come from Virginia, where taxes are only 30 cents a pack versus New York's $4.35, and much of the liquor comes from Maryland, which has a $1.50 per gallon tax on liquor versus New York's $7.44.

This is not only denying tax revenue to local and state governments, but hurting compliant businesses as well. Crain's reports that one New York liquor magnate is suing another, claiming the defendant is using smuggled alcohol to undercut his business. It also quotes a cigarette wholesaler who said that business is down 85 percent due to competition from cheaper illegal cigarettes.

While the government has long attempted to crack down on alcohol and tobacco smuggling, Crain's reports that it's been a losing battle. While arrests for smuggling has doubled over the past year, rising to 133, contraband goods remain a massive presence. This scale makes further efforts to control smuggling problematic. Crain's reports that the city's Department of Finance can inspect only 500 stores per year, out of the 10,000 in the city that sells cigarettes, as it has many other duties that it needs to fulfill as well. There's also a problem of jurisdiction: while Albany tried to pass a bill that would require distributors to store liquor and wine 24 hours in New York before selling it, so as to give inspectors more time to ensure tax compliance, smaller distributors store their goods in New Jersey, outside the state's jurisdiction. The unwillingness of these smaller distributors to pay for moving their goods to New York caused the bill to fail.